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Will the Skill-Premium in the Netherlands Rise in the Next Decades?

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  • Dupuy, Arnaud

    (University of Luxembourg)

Abstract

While the skill-premium has been rising sharply in the US and the UK for 20 years, the Dutch skill-premium decreased for much of that period and only started to rise in the early 90s. In this paper, we investigate whether the Dutch skill-premium will rise in the next decades. To answer this question, we forecast the skill-premium using the Katz and Murphy (1992) and the Krusell et al. (2000) models. The Katz and Murphy model (KM) explains demand shifts by skill-biased technological change in unobservable variables captured by a time trend. In contrast, the Krusell et al. model (KORV) explains demand shifts by (observable) changes in the capital stock under a capital-skill complementarity technology. The results show that while the KM model predicts that the skill-premium will have increased by 30% in 2020, based on realistic predictions of the stock of capital, the KORV model predicts that the skill-premium will remain between -5% and +5% of its 1996 level.

Suggested Citation

  • Dupuy, Arnaud, 2007. "Will the Skill-Premium in the Netherlands Rise in the Next Decades?," IZA Discussion Papers 2708, Institute of Labor Economics (IZA).
    • Handle: RePEc:iza:izadps:dp2708
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    2. Jan Kakes & Jasper de Winter, 2008. "Preferences for redistribution in the Netherlands," DNB Working Papers 179, Netherlands Central Bank, Research Department.
    3. Florentino Felgueroso & Manuel Hidalgo-Pérez & Sergi Jiménez-Martín, 2016. "The Puzzling Fall of the Wage Skill Premium in Spain," Manchester School, University of Manchester, vol. 84(3), pages 390-435, June.
    4. Havranek, Tomas & Irsova, Zuzana & Laslopova, Lubica & Zeynalova, Olesia, 2020. "Skilled and Unskilled Labor Are Less Substitutable than Commonly Thought," EconStor Preprints 223060, ZBW - Leibniz Information Centre for Economics.
    5. Havranek, Tomas & Irsova, Zuzana & Laslopova, Lubica & Zeynalova, Olesia, 2020. "The Elasticity of Substitution between Skilled and Unskilled Labor: A Meta-Analysis," MPRA Paper 102598, University Library of Munich, Germany.

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    JEL classification:

    • D33 - Microeconomics - - Distribution - - - Factor Income Distribution
    • J11 - Labor and Demographic Economics - - Demographic Economics - - - Demographic Trends, Macroeconomic Effects, and Forecasts
    • J38 - Labor and Demographic Economics - - Wages, Compensation, and Labor Costs - - - Public Policy

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